It must have been too tempting not to buy another small parcel @ 70c.
Printable View
As per the others, thanks Mav.
My thinking wasnt complex enough to think of the build and cashflow timings of the different companies and how this impacts debt and returns. Complex industry to get your head around...
Ok, love the optimism, but I'm going to lob the bomb into the room. Look forward to your replies. (great to have you back Ferg, Mav)
I think the 'elephant in the room' is the abysmal EPS since IPO. It is indefensible. Notwithstanding the share price and market cap, there's a message being sent there by 'the market', and keep in mind there's big insto/funds money behind this, that they need to show a return to their investors. They can't though. OCA returns nothing to investors right now.
They can't, and don't show that return to investors, and it got worse with Div's being cut, EPS and returns has bascially dissolved into nothing. Sure, it's short-termism but that market sentiment decides the market cap, and it's saying "show me the money"! So how are they going to do that?
Investors, shareholders, have not and are not being rewarded for their commitment of capital to OCA. We might like it as we can buy OCA at multiples discount to all metrics, but NZ investors in the majority are passive and rely on their financial advisor/broker to recommend investments that return earnings to them.
Sure, we can accept all of the OCA strategy and aggressive developments and growth ambitions, and obfuscated financial reporting like unpat and masked cashflows, but what we eventually cannot (should not?) accept as investors is a flatline EPS, and now no returns to shareholders.
Like you can get 6+% compounding just by putting your money in a bank TD, so why would you 'invest' in a RV that pays out nothing, has no rewards for investment? Unfortunately many think like this, they just take advice and get out of no-return equities and put it in TD's.
OCA has to show us how they're pivoting to the new norm. Where they rationalise developments to reduce capex, sell their excessive (obscene?) stock of property, unload a few remaining unwanted villages to get their debt a bit lower before it expires and reverts to high interest, restores healthy cash flows and restores returns to investors. Some transparent and understandable financial reporting might help as well.
Until these things happen, instos and funds will divert their big money elsewhere, where the returns to their customers are a lot better. It could take a while to restore investor confidence in OCA, not everyone has a 10, 20, 40 year horizon.
Truth be known, probably bugger all have that horizon, and OCA is a dud investment until they start returning EPS to their investors.
Good post BaaBaa...
Yes excellent post Baa Baa
Good post. I think that's a fair summation of the current situation. I suppose those invested have done so in anticipation of EPS growth. For those who have run out of patience, OCA clearly hasn't shown enough of this. I suppose it's up to the individual as to whether one thinks the reasons for a flat EPS (well documented by some great contributors here) are valid and, more importantly, whether that should temper expectations of the future. Clearly there are folks in both camps, though I do think it's significant that the people closest are invested and continue to invest.
Well said, also the people who are the closest and can pull the strings/have some control as well as vast experience and business acumen.
Was a great point by Mav that those entering now have a vastly different potential CAGR than he does (or the insiders) who understand it more than most anyone.
Everybody knows that OCA is pivoting away from resthome beds to "village units" which encompasses both apartments and villas.
I did a comparison between the situation at 31 March 2023 (end of FY23) and 30 september 2023 (HY24). OCA has shed 255 resthome beds and 4 care suites in that period, while "banking" a further 67 village units.
The release of resthome beds was achieved by not extending the leases at Everill Orr (52) and Wesley (51) in Auckland and selling Greenvalley lodge (50) and Amberwood (67) on the North Shore and in Waitakere respectively, and by closing Otumarama (32 plus 7 care suites) in Nelson. 3 resthome beds at Elsdon in Paraparaumu were repurposed to care suites.
The Interim Report indicates there are 7 further sites "held for sale" with one of those under contract. We can expect those unnamed facilities to be among the remaining ones that are exclusively care beds, and there happen to be exactly 7 of those, but it is possible one or two others which have a small number of care suites in addition might be included in those "on the block" if some of the others in that category have some limited development potential.
Given care beds operated reduced from 1651 to 1396 over that period there will still be a lot of care beds in the portfolio even if the 7 intended sales/disposals are achieved, but we can clearly infer OCA is exiting traditional resthome facilities. They may not be unprofitable at current bed subsidy levels but they will not make an acceptable return on capital and are dependant upon government support to residents which is ungenerous at best and lacks commitment when the national economic circumstance is constrained.
These steps are incrementally good for investors in the longer term but a canary in the mine as to how aged care will be in future.